Factory Inspection in China – Getting It Right

The Pearl River Delta lies in the southern province of Guangdong, a short trip away from Hong Kong. It is China’s manufacturing heartland, and despite the continued industrialisation of the country’s interior provinces (with significant investments from the government in Tier 2, 3 & 4 cities this is likely to accelerate over the next few years) it is where most companies will initially seek to conduct any significant production outsourcing in the nation.

The majority of production lies in the manufacturing belt between the two megacities of Shenzhen and Guangzhou and there are literally tens of thousands of factories and facilities to choose from in these locations.

The cost savings and increased capacity make outsourcing to China, a “no brainer” strategic decision for many Western producers. There is a huge skilled workforce and massive developed capacity for manufacturing already in place, and whatever product you’re looking for there is almost certainly a number of factories ready and able to compete for your business.

That’s the headline and it is all true, what is often not said about China is that the marketplace is fraught with dangers for the unwary customer. It’s possible that your decision to outsource may lead to your brand being associated with the worst kinds of headline from developing nations.

Child labour? Mentally handicapped adults sold as slave labour? Wages so low and conditions so bad that workers routinely commit suicide? Massive pollution crippling the local environment and poisoning the local people? Shoddy goods that can lead to injury or death of users? All of these problems and more have been identified with Chinese production in the last year alone.

The key to avoiding these problems is of course to inspect your new production facilities, both regularly and adequately.

What are the barriers to successful factory inspection?

– Language – whatever you may believe about the idea that “the world speaks English”. It isn’t true in China; China has the lowest functional English literacy rate of any nation on earth. There are two major languages used in the country – Mandarin and Cantonese. Mandarin is the most widely spoken, but Cantonese may be vital in the south of the country, particularly if your provider is located in Guangzhou (and to a much lesser extent Shenzhen). You cannot rely on the supplier’s sales force (who are the only people likely to speak English in any given company) to act as an interpreter for you. If you can’t speak the language you need to use a translation service to make sure you understand exactly what the situation is.

– Culture – Chinese culture is widely different to traditional Western business culture. The first problem you are likely to encounter is the concept of “saving face” which means that your factory may well be economic with the truth (not necessarily because they are being fraudulent) to save themselves public embarrassment and more likely to say “yes” to your demands when they mean “no”.

– Timing – when you visit a supplier as a prospective customer they are likely to be on their “best behaviour” (which sometimes doesn’t mean very much) and all potential sources of embarrassment are likely to have been cleared away before you arrive (the ugly truth is that this could mean they lock all the child labourers away for the day for example) preventing you from making an accurate assessment as to their suitability.

– Understanding – it can be hard to validate even the basics in China, for example how will you know if that piece of paper purporting to be a business licence or for export permission is valid and genuine? The country is famous for copying anything that can be copied or faked and that includes paperwork.

– Information shortage – there is simply no real data held publicly in easy to access format that can help inform your decision, no customer review databases, no consumer protection society (or indeed much in the way of consumer protection regulation either) or reliable trade bodies to assist in informing your choice.

These barriers are not insurmountable and with care and planning it is perfectly possible to conduct your own inspection of your chosen factory. However the simple truth is that this is often an expensive and time consuming option, in today’s commercial climate delaying your outsourcing decisions can cost you market share and revenue.

One of the most common methods of getting round the barriers is to team up with a local quality assurance company to handle your factory inspections for you. Ideally you want to work with a business that is Western owned (local only companies have a certain reputation for writing more favourable reviews for suppliers based on compensation provided in a brown envelope by the vendor) and has a Western and Chinese workforce. These companies often have a good understanding of the local business environment and in addition to being able to overcome the barriers above, they have access to the local “grapevine” to better inform your outsourcing choice.

Whichever way you choose to conduct your outsourcing, make sure you include factory inspection as a vital component to ensure your success.